The Realities of Buying a Car with Bad Credit

byDalia DaytononFebruary 3, 2015

Let’s face it, no one likes being stuck with a crappy car. When your ride is making all sorts of noises that are reminiscent of a dying animal and the radio only works when you click your heels together three times, driving anywhere can feel frustrating and embarrassing.

But is it worth trying to buy from a NH used car dealer if you’re recovering from some less than awesome financial times and you credit is still in rough shape?

Buyers definitely face some harsh realities when they’re shopping for a vehicle with bad credit. Not only are rejections pretty much a guarantee if you seek traditional financing, but the alternatives can land you with debt you’ll quickly regret.

If you’re trying to decide whether to hang in there or trade up sooner rather than later, here’s an idea of what you’ll face when you buy with bad credit.

You Might Have to Settle For Less

Finding a vehicle you can afford can be quite a task when your credit score has tanked and your budget Is tight. While there are a lot of dealerships that will try to coax you into purchasing something beyond your means, you have to be realistic.

Think about how you got into your current credit situation in the first place. It’s probable that an unwise investment or an unexpected life change prompted your score’s decline.

Unfortunately, layoffs happen, interest rates change on flexible mortgage loans, and injuries or illnesses strike out of the blue. Life is unpredictable.

That’s why you always have to plan ahead and invest with the knowledge that you need to be able to afford your car payment even if your financial situation takes a hit.

And if you’re still trying to rebuild credit and pay off bills, that means the car you can actually afford probably won’t be your dream vehicle. You need to pick something practical without all the bells and whistles.

You’ve got other financial obligations to deal with, so your auto loan has to be well within reason. If you’re upgrading primarily because you want some snazzier wheels, it’s better to wait.

A few months down the road, with the bills paid off and a little cash in your account, you’ll be able to find a vehicle that’s a lot closer to the feature-filled one your imagining.

However, if you have to buy now, buy smart. Stick with a basic commuter that runs. That’s the only way to avoid running into further money problems.

You’ll Pay a Lot More in the Long Run

Today there are more financing options than ever for buyers with bad credit. Many dealers offer in-house loans with extremely tempting up-front costs, sometimes as little as zero percent down.

But the picture isn’t always as rosy as it may appear. While you can probably get financing for a really nice vehicle, that doesn’t mean you’ll be able to keep up with the monthly payments.

And in the long-term, you’ll end up paying a lot more than you would with a traditional auto loan. You can expect to shell out a larger down payment, and terms are likely to include an exorbitant interest rate or super long loan life.

Don’t think about just the monthly amount; think about how much the car is going to cost you when all is said and done. If you’re not careful, you could end up overpaying by thousands of dollars.

Even with bad credit, you can still be a savvy shopper. Work out the total cost of the car over the life of loan. Negotiate the interest rate if possible, and avoid financing that extends for more than five years.

If it’s going to take you that long to pay off the car, you can’t afford it. Don’t get locked into an unreasonable agreement. Think long and hard about what you actually need and how much you’re willing to pay in the long run.

You Need to Be on the Defensive

It’s important to be extremely wary when you’re shopping. Car dealerships are businesses, and they try to make as much money as possible off of each sale. That’s just how it works.

It might seem like it’s your lucky day when a salesperson says that you can drive off the lot in a sweet little coupe, but if it seems too good to be true, it probably is.

Many dealers take advantage of buyers with bad credit, talking them into higher end models and slipping in loan terms and fees that come back to bite them later.

A lot of dealerships that offer in-house loans will also require more frequent payments, and some even equip the cars they sell with shut-off devices that activate if payment is overdue.

Imagine not being able to get to work because you’re behind on your bills and your car has been disabled. It’s not a pretty picture, is it?

If you’re negotiating at the dealership and things seem amiss, follow your gut. It’s extremely easy to get talked into an unhealthy financial agreement, especially with all of the pressure and emotions that are involved in getting a new car.

Always be prepared to walk away. There are plenty of good vehicles out there and plenty of dealerships that can genuinely help you with your bad credit situation.

If you think you’ve walked into a place that doesn’t have your best interest at heart, don’t waste another second. Find a dealer that will treat your fairly.

Waiting to Pay Off Other Debt Will Really Help

For all of these reasons, it’s absolutely worth eeking out a little more life from your current vehicle and doing some credit score damage control before you start shopping around.

Obviously if your car has gasped its last breath and headed up to the junkyard in the sky, you’re low on options. But if there is any possible way for you to hold out and work on remedying your finances, it’s well worth it.

Buyers with decent or good credit get much more agreeable financing terms and rates. They’re considered less high risk because their background demonstrates financial responsibility.

If you put time and effort into clearing your outstanding debts, fixing any errors recorded in your credit report, and making your budget work for you, you’ll be able to get more car for a better price.

Start by obtaining a copy of your credit report; you can request one for free online. Assess your current situation and make an action plan.

As you take care of old issues, don’t forget to stay on top of your existing payments. Paying your bills on time is the key to a good score.

It’s also important to evaluate the state of your credit cards. How high are those balances? Are you only paying the minimum just to stay afloat? That’s no good.

Credit bureaus like to see card balances that are below 20 or 25 percent of your available credit. If you’re maxed out, it will be noticed.

Make a plan to chip off more each month. Instead of paying the minimum, really commit to getting your balances down, even it means living lean and eating Ramen noodles for a little while.

You’d be surprised how quickly you can get your finances back in order when you examine your expenses carefully and cut back on the extras.

Though it will be a lot of work, you’ll be glad you took the smart approach, especially when you’re cruising around in the car you really want a year from now.